Raoul Pal defended millennials who like meme stocks and crypto and defy typical investing advice.
The former Goldman Sachs executive noted that young investors don’t care what Wall Street says.
Pal suggested investing will be driven by a shift in interest towards technology.
Raoul Pal, a former Goldman Sachs hedge fund manager and the current CEO of Real Vision TV, defended the millennial investors who have piled into cryptocurrencies and meme stocks in defiance of conventional investing strategies.
In a Twitter thread on Sunday, Pal laid out that factors like “debts, no savings, no hope from the grind” have made this new generation of investors feel hopeless and skeptical of traditional investing.
“Unlike their parents in their 30s, they didn’t get gifted equities with a P/E (price-earnings ratio) of 7, bond yields at 13% or real estate at the lows versus income,” he said. “They got the opposite. Their opportunity set was an expected negative future return. They didn’t want any part of our financial system.”
A P/E ratio as low as 7 would represent an extremely cheap valuation for many public companies. The average P/E for the S&P 500 rose above 20 in May 2020, its highest valuation in 18 years.
A clear pattern emerged in markets this year. During one of the most volatile periods in history, and against a backdrop of increasing social influence, inexperienced investors rushed to invest in stocks with little understanding or concern for the fundamentals of the businesses behind them, or the risks of holding them.
“They had occupied Wall St and no one gave a shit. Now they don’t give a shit about how you or I think you should invest or run markets. We let them down,” Pal said.
While some responsibility certainly lies with the investor, zero-commission apps like Robinhood played a part in making it seem like the risks of investing were minimized. In defiance of hedge funds and investing norms, and in response to inflationary triggers, Wall Street found itself dealing with two trading frenzies: meme stocks and cryptocurrencies.
Pal said retail traders had no hesitance in using stimulus checks distributed by the government during COVID-19 towards these emergent trends because they had nothing to lose.
He said there’s a huge shift in attitude from the love of oil or commodities towards technology that will set the tone for the next decade.
“If we were given a free stake at the casino, we would do the same,” he said. “But they didn’t buy our precious gold miners, or our discounted value businesses. Why? Because they don’t care about 10% returns. The only way to level the playing field was to take MASSIVE risk.”
“They took HUGE risks to make BIG rewards. And contrary to US older cynics, they knew the risks but they still wanted to take them. It was fun.”
More traditional finance experts warned against such get-rich-quick opportunities, and urged investors to buy diversified, long-term portfolios rather than chasing hot stocks.
But Pal said there’s no reason for millennials to wait for minimal returns.
“Screw active management, screw hedge funds,” he said. “They wanted to just stick money in the markets as they were told (Hello passive!) and punt the rest. Crypto resonated. Huge upside, downside of zero. It was a giant options market. Limited losses, exponential upside. They are right.”
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